42 CFR Parts 405, 410, 411, 414, 415, and 424. Medicare Program; Revisions to Payment Policies, Five-Year

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1 DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 405, 410, 411, 414, 415, and 424 [CMS-1321-FC and CMS-1317-F] RINs 0938-AO24 and 0938-AO11 Medicare Program; Revisions to Payment Policies, Five-Year Review of Work Relative Value Units, Changes to the Practice Expense Methodology Under the Physician Fee Schedule, and Other Changes to Payment Under Part B; Revisions to the Payment Policies of Ambulance Services Under the Fee Schedule for Ambulance Services; and Ambulance Inflation Factor Update for CY AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule with comment period. SUMMARY: This final rule with comment period addresses certain provisions of the Deficit Reduction Act of 2005, as well as making other changes to Medicare Part B payment policy. These changes are intended to ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services. This final rule with comment period also discusses geographic practice cost indices (GPCI) changes; requests for additions to the list of telehealth services; payment for covered outpatient

2 CMS-1321-FC 2 drugs and biologicals; payment for renal dialysis services; policies related to private contracts and opt-out; policies related to bone mass measurement (BMM) services, independent diagnostic testing facilities (IDTFs), the physician self-referral prohibition; laboratory billing for the technical component (TC) of physician pathology services; the clinical laboratory fee schedule; certification of advanced practice nurses; health information technology, the health care information transparency initiative; updates the list of certain services subject to the physician self-referral prohibitions, finalizes ASP reporting requirements, and codifies Medicare s longstanding policy that payment of bad debts associated with services paid under a fee schedule/charge-based system are not allowable. We are also finalizing the calendar year (CY) 2006 interim RVUs and are issuing interim RVUs for new and revised procedure codes for CY In addition, this rule includes revisions to payment policies under the fee schedule for ambulance services and the ambulance inflation factor update for CY As required by the statute, we are announcing that the physician fee schedule update for CY 2007 is -5.0 percent,

3 CMS-1321-FC 3 the initial estimate for the sustainable growth rate for CY 2007 is 2.0 percent and the CF for CY 2007 is $ DATES: Effective Date: These regulations are effective on [OFR--insert date 60 days after date of display in the Federal Register]. Comment Date: Comments will be considered if we receive them at one of the addresses provided below, no later than 5 p.m. on [OFR--insert date 60 days after date of display in the Federal Register]. ADDRESSES: In commenting, please refer to file code CMS-1321-FC. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of three ways (no duplicates, please): 1. Electronically. You may submit electronic comments on specific issues in this regulation to Click on the link Submit electronic comments on CMS regulations with an open comment period. (Attachments should be in Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft Word.) 2. By mail. You may mail written comments (one original and two copies) to the following address ONLY:

4 CMS-1321-FC 4 Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1321-FC, P.O. Box 8014 Baltimore, MD Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments (one original and two copies) to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1321-FC, Mail Stop C , 7500 Security Boulevard, Baltimore, MD By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments (one original and two copies) before the close of the comment period to one of the following addresses. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) in advance to schedule your arrival with one of our staff members.

5 CMS-1321-FC 5 Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD (Because access to the interior of the HHH Building is not readily available to persons without Federal Government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.) Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by mailing your comments to the addresses provided at the end of the "Collection of Information Requirements" section in this document. For information on viewing public comments, see the beginning of the "SUPPLEMENTARY INFORMATION" section.

6 CMS-1321-FC 6 FOR FURTHER INFORMATION CONTACT: Pam West, (410) (for issues related to practice expense). Stephanie Monroe, (410) (for issues related to the geographic practice cost index). Craig Dobyski, (410) (for issues related to list of telehealth services). Roberta Epps, (410) (for issues related to diagnostic imaging services). Bill Larson, (410) (for issues related to coverage of bone mass measurement and addition of ultrasound screening for abdominal aortic aneurysm to the Welcome to Medicare benefit). Dorothy Shannon, (410) (for issues related to the outpatient therapy cap). Catherine Jansto, (410) (for issues related to payment for covered outpatient drugs and biologicals). Henry Richter, (410) (for issues related to payments for end-stage renal disease facilities). Fred Grabau, (410) (for issues related to private contracts and opt-out provision). David Walczak (410) (for issues related to reassignment provisions)

7 CMS-1321-FC 7 August Nemec (410) (for issues related to independent diagnostic testing facilities) Anita Greenberg, (410) (for issues related to the clinical laboratory fee schedule). James Menas (410) (for issues related to payment for physician pathology services). Anne Tayloe, (410) ; or Glenn McGuirk, (410) (for issues related to the ambulance fee schedule Diane Milstead, (410) or Gaysha Brooks (410) (for all other issues). SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments from the public on the following issues: interim Relative Value Units (RVUs) for selected procedure codes identified in Addendum C and the physician self-referral designated health services (DHS) listed in Tables 18 and 19. You can assist us by referencing the file code CMS-1321-FC and the specific issue identifier that precedes the section on which you choose to comment. Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is

8 CMS-1321-FC 8 included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: Click on the link Electronic Comments on CMS Regulations on that Web site to view public comments. Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone This Federal Register document is also available from the Federal Register online database through Government Printing Office Access a service of the U.S. Government Printing Office. The Web site address is: Information on the physician fee schedule can also be found on the CMS homepage. You can access this data by using the following directions: 1. Go to the following Web site:

9 CMS-1321-FC 9 2. Select PFS Federal Regulation Notices. To assist readers in referencing sections contained in this preamble, we are providing the following table of contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations. Information on the regulation s impact appears throughout the preamble and is not exclusively in section VI. Table of Contents I. Background A. Development of the Relative Value System B. Components of the Fee Schedule Payment Amounts C. Most Recent Changes to the Fee Schedule II. Provisions of the Final Rule A. Resource-Based Practice Expense Relative Value Units 1. Current Methodology 2. Proposals for Revising the PE Methodology 3. Specific Changes to the Indirect PE Methodology for Calendar Year Additional PE Issues for CY 2007 a. RUC Recommendations for Direct PE Inputs and Other PE Input Issues b. Payment for Splint and Cast Supplies c. Medical Nutrition Therapy Services

10 CMS-1321-FC 480 applies only to services reimbursed on the basis of reasonable cost or to services paid under one of Medicare s prospective payment systems that have a basis in reasonable costs that do not reflect Medicare payment of bad debts during a specified provider base period. Accordingly, when outpatient therapy services began to be paid for on a fee schedule methodology, payment of bad debts associated with these services was no longer available. Therefore, we do not agree with the commenter and we are revising (i) and adding new (d) as proposed. III. Revisions to the Payment Policies of Ambulance Services under the Fee Schedule for Ambulance Services and the Ambulance Inflation Factor Update for CY Under the ambulance fee schedule, the Medicare program pays for transportation services for Medicare beneficiaries when other means of transportation are contraindicated. Ambulance services are classified into different levels of ground (including water) and air ambulance services based on the medically necessary treatment provided during transport. These services include the following levels of service: For Ground-- + Basic Life Support (BLS)

11 CMS-1321-FC Advanced Life Support, Level 1 (ALS1) + Advanced Life Support, Level 2 (ALS2) + Specialty Care Transport (SCT) + Paramedic ALS Intercept (PI) For Air-- + Fixed Wing Air Ambulance (FW) + Rotary Wing Air Ambulance (RW) A. History of Medicare Ambulance Services 1. Statutory Coverage of Ambulance Services Under sections 1834(l) and 1861(s)(7) of the Social Security Act (the Act), Medicare Part B (Supplemental Medical Insurance) covers and pays for ambulance services, to the extent prescribed in regulations, when the use of other methods of transportation would be contraindicated by the beneficiary s medical condition. The House Ways and Means Committee and Senate Finance Committee Reports that accompanied the 1965 Social Security Amendments suggest that the Congress intended that-- The ambulance benefit cover transportation services only if other means of transportation are contraindicated by the beneficiary s medical condition; and Only ambulance service to local facilities be covered unless necessary services are not available locally, in which case, transportation to the nearest

12 CMS-1321-FC 482 facility furnishing those services is covered (H.R. Rep. No. 213, 89 th Cong., 1 st Sess. 37 and Rep. No. 404, 89 th Cong., 1 st Sess. Pt 1, 43 (1965)). The reports indicate that transportation may also be provided from one hospital to another, to the beneficiary s home, or to an extended care facility. 2. Medicare Regulations for Ambulance Services Our regulations relating to ambulance services are set forth at 42 CFR part 410, subpart B and 42 CFR part 414, subpart H. Section (i) lists ambulance services as one of the covered medical and other health services under Medicare Part B. Therefore, ambulance services are subject to basic conditions and limitations set forth at and to specific conditions and limitations included at Part 414, subpart H, describes how payment is made for ambulance services covered by Medicare. The national fee schedule for ambulance services is being phased in over a 5-year transition period beginning April 1, 2002 as specified in As of January 1, 2006, the total payment amount for air ambulance providers and suppliers is based on 100 percent of the national ambulance fee schedule. In accordance with section 414 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) (Pub. L ), we

13 CMS-1321-FC 483 added which specifies that for ambulance services furnished during the period July 1, 2004 through December 31, 2009, the ground ambulance base rate is subject to a floor amount, which is determined by establishing nine fee schedules based on each of the nine census divisions, and using the same methodology as was used to establish the national fee schedule. If the regional fee schedule methodology for a given census division results in an amount that is lower than or equal to the national ground base rate, then it is not used, and the national fee schedule amount applies for all providers and suppliers in the census division. If the regional fee schedule methodology for a given census division results in an amount that is greater than the national ground base rate, then the fee schedule portion of the base rate for that census division is equal to a blend of the national rate and the regional rate. For CY 2006, this blend is 40 percent regional ground base rate and 60 percent national ground base rate. As of January 1, 2007, the total payment amount for ground ambulance providers and suppliers will be based on either 100 percent of the national ambulance fee schedule or 80 percent of the national ambulance fee schedule and 20 percent of the regional ambulance fee schedule.

14 CMS-1321-FC 484 B. Provisions of the Final Regulation In this rule, we are finalizing changes to the fee schedule for payment of ambulance services by adopting revised geographic designations for urban and rural areas as set forth in OMB s Core-Based Statistical Areas (CBSAs) standard. We are adding the definition of urban area as defined by the Executive Office of Management and Budget (OMB). In addition, we are removing the definition of Goldsmith modification and amending our definition of rural area to include areas determined to be rural under the most recent version of the Goldsmith modification. We are withdrawing our proposal to change the language of our regulation defining specialty care transport (SCT) to conform to our existing payment policies. In response to public comments, we are broadening and clarifying our interpretation of the existing language and responding to other issues associated with the definition of SCT. In addition, we are discontinuing our annual review of the original CF assumptions and of the original air ambulance rates from the initial implementation of the fee schedule in 2002 because we have not identified any significant differences from those assumptions in the 4 years since the implementation of the fee schedule. We will continue to monitor payment and billing data on an

15 CMS-1321-FC 485 ongoing basis and make adjustments to the CF and to air ambulance rates as appropriate to reflect any significant changes in these data. Finally, in response to public comment, we are withdrawing our proposal to revise our current definition of Emergency response to further specify the conditions that warrant a higher payment for immediate response. Our reasons for withdrawing our proposal are explained in section III.B.4. of this preamble. 1. Adoption of New Geographic Standards for the Ambulance Fee Schedule Historically, the Medicare ambulance fee schedule has used the same geographic area designations as the acute care hospital IPPS and other Medicare payment systems to take into account appropriate urban and rural differences. This provides a consistent and objective national definition for ambulance payment purposes within the ambulance fee schedule and generally across Medicare payment systems. It also utilizes geographic area designations that more realistically reflect rural and urban populations, resulting in more accurate payments for ambulance services. Accordingly, we are adopting OMB s CBSA-based geographic area designations, which have been adopted for the IPPS, to more accurately identify urban and

16 CMS-1321-FC 486 rural areas for ambulance fee schedule payment purposes. We are also adopting the most recent modification of the Goldsmith Modification, consistent with the provisions of section 1834(l), to more accurately determine rural census tracts within metropolitan areas. These changes will affect whether certain areas are recognized as rural or urban. The distinction between urban and rural is important for ambulance payment purposes because ambulance payments are based on the point of pickup for the transport, and the point of pick-up for urban and rural transport is paid differently. Of particular significance to the ambulance fee schedule, the changes would affect whether or not certain areas are eligible for certain rural bonus payments under the ambulance fee schedule. For example, the changes would affect whether or not certain areas are recognized as what we refer to as Super Rural Bonus areas established by section 414(c) of the MMA and set forth in section 1834(l)(12) of the Act. That section specifies that, for services furnished during the period July 1, 2004 through December 31, 2009, the payment amount for the ground ambulance base rate is increased by a percent increase (Super Rural Bonus) where the ambulance transport originates in a rural area (which includes Goldsmith areas) that we determine to be in the

17 CMS-1321-FC 487 lowest 25 th percentile of all rural populations arrayed by population density. a. Core-Based Statistical Areas (CBSAs): Revised Office of Management and Budget (OMB) Metropolitan Area Definitions In the February 27, 2002 final rule (67 FR 9100), we stated that we could not easily adopt and implement, within the timeframe necessary to implement the fee schedule, a methodology for recognizing geographic population density disparities other than MSA/nonMSA. We also stated that we would consider alternative methodologies that may more appropriately address payment to isolated, low-volume rural ambulance providers and suppliers at a later date. The application of any rural adjustment is determined by the geographic location of the beneficiary at the time he or she is placed on board the ambulance. We are now finalizing the adoption of OMB s revised geographic area designations for urban and rural areas and the most recent modification of the Goldsmith Modification to address payment to those isolated, low-volume rural providers and suppliers. Prior to the 2000 decennial census, geographic areas were consistently defined by OMB as Metropolitan Statistical Areas (MSAs) with an MSA being defined as an

18 CMS-1321-FC 488 urban area and anything outside an MSA being defined as a rural area. In addition, for purposes of ambulance policy, we recognized the 1990 update of Goldsmith areas (generally, rural census tracts within counties that covered large tracts of land with one predominant urban area only) as rural areas (65 FR through 55100). In Fall 1998, OMB chartered the Metropolitan Area Standards Review Committee to examine the Metropolitan Area (MA) standards and develop recommendations for possible changes to those standards. Three notices related to the review of the standards were published on the following dates in the Federal Register, providing an opportunity for public comment on the recommendations of the Committee: December 21, 1998 (63 FR through 70561); October 20, 1999 (64 FR through 56644); and August 22, 2000 (65 FR through 51077). In the December 27, 2000, Federal Register (65 FR through 82238), OMB announced its new standards. In that notice, OMB defined a CBSA, beginning in 2003, as a geographic entity associated with at least one core of 10,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties. CBSAs are conceptually areas that contain a recognized

19 CMS-1321-FC 489 population nucleus and adjacent communities that have a high degree of integration with that nucleus. The purpose of the new OMB standards is to provide nationally consistent definitions for collecting, tabulating, and publishing Federal statistics for a set of geographic areas. The OMB standards designate and define two categories of CBSAs: Metropolitan Statistical Areas (MSAs); and Micropolitan Statistical Areas (65 FR through 82238). According to OMB, MSAs are based on urbanized areas of 50,000 or more population and Micropolitan Statistical Areas (referred to in this discussion as Micropolitan Areas) are based on urban clusters of at least 10,000 population but less than 50,000 population. Counties that do not fall within CBSAs are deemed Outside CBSAs. Under the ambulance fee schedule, MSAs would continue to be recognized as urban areas and all other areas outside MSAs (including Micropolitan Areas, areas Outside CBSAs", and areas that are determined to be rural under the most recent modification of the Goldsmith Modification) would be recognized as rural areas. As noted previously, these designations are important because under the ambulance fee schedule, Medicare transports are designated either urban or rural based on the pick-up point of the transport.

20 CMS-1321-FC 490 As of June 6, 2003, the new OMB definitions recognized 49 new MSAs and 565 new Micropolitan Areas, and extensively revised the composition of many of the existing MSAs. There are 1,090 counties in MSAs under the new definitions (previously, there were 848 counties in MSAs). Of these 1,090 counties, 737 are in the same MSA as they were prior to the changes, 65 are in a different MSA, and 288 were not previously designated to any MSA (69 FR 49027). There are 674 counties in Micropolitan Areas. Of these, 41 were previously in an MSA, while 633 were not previously designated to an MSA. There are five counties that previously were designated to an MSA, but are no longer designated to either an MSA or a new Micropolitan Area (Carter County, Kentucky; St. James Parish, Louisiana; Kane County, Utah; Culpepper County, Virginia; and King George County, Virginia) (69 FR 49027). Our adoption of CBSA-based geographic area designations means that ambulance providers and suppliers that pick up Medicare beneficiaries in areas that are now outside of MSAs (but had been within MSA areas) may experience increases in payment, while those ambulance providers and suppliers that pick up Medicare beneficiaries in areas that are now within MSA areas (but had been outside of MSAs) may experience decreases in payment.

21 CMS-1321-FC 491 The use of updated geographical areas means the recognition of new urban and rural boundaries based on the population migration that occurred over a 10-year period, between 1990 and We believe that updating the MSA definition to conform with OMB s CBSA-based geographic area designations, coupled with updating the Goldsmith Modification (that is, using the current Rural Urban Commuting Areas (RUCAs) version, as discussed in section III.B.1.b of this final rule), will more accurately reflect the contemporary urban and rural nature of areas across the country for ambulance payment purposes and cause ambulance fee schedule payments to become more accurate. As of October 1, 2004, the IPPS adopted OMB s revised metropolitan area definitions to identify urban areas for payment purposes. Under the IPPS, MSAs are considered urban areas and Micropolitan Areas and areas Outside CBSAs are considered rural areas as specified in (b). We are adopting similar CBSA-based designations of urban area and rural area under the ambulance fee schedule for the reasons discussed. Therefore, we are revising to include a definition of urban area and to reflect OMB s revised CBSA-based

22 CMS-1321-FC 492 geographic area designations in our definition of rural area. Comment: Some commenters suggested that we should mitigate any financial impact of the CBSA-based geographic changes by holding negatively-affected ambulance companies harmless or by adopting a phase-in of the CBSA-based geographic changes. Response: While we understand the concern of some ambulance companies about the CBSA-based geographic changes, we think most negative impacts will be mitigated when we incorporate the updated Goldsmith Modification using RUCAs, as we discuss in section III.B.1.b. of this final rule. The RUCAs allow us to continue to recognize sub-county rural areas in CBSA-based MSAs. Further, we believe that accurate payments to rural areas should not be further delayed. Ambulance payments will not reflect the population changes documented by the CY 2000 decennial census and reflected in CBSA-based geographic designations until CY Finally, ambulance providers and suppliers who benefit from the floor amount based on Regional fee schedules will continue to receive transition payments through CY 2009, mitigating the overall financial impacts of the ambulance fee schedule.

23 CMS-1321-FC 493 Comment: Several commenters suggested delaying the implementation of the CBSA-based geographic changes until the findings of the GAO report on costs and access as they relate to ambulance services is published. The final report is currently due to be published by December Response: We contacted the GAO concerning this report. At this time, the draft findings are not available and GAO is not permitted to discuss the report until its release. In view of the mitigating effects of our use of RUCAs, and in light of the fact that no super rural bonus areas are affected by the CBSA-based geographic designations, we think that the better course of action is to finalize our adoption of CBSA-based urban and rural designations. However, we will maintain contact with the GAO and, when their findings are available, we will consider whether any further adjustments are necessary. b. Updated Goldsmith Modification: Rural Urban Commuting Areas (RUCAs) The Goldsmith Modification evolved from an outreach grant program sponsored by the Office of Rural Health Policy of the Health Resources and Services Administration (HRSA). This program was created to establish an operational definition of rural populations lacking easy access to health services in Large Area Metropolitan

24 CMS-1321-FC 494 Counties (LAMCs). Dr. Harold F. Goldsmith and his associates created a methodology for identifying rural census tracts located within a large metropolitan county of at least 1,225 square miles. Using a combination of data on population density and commuting patterns, census tracts were identified as being so isolated by distance or physical features that they were more rural than urban in character. The original Goldsmith Modification was developed using data from the 1980 census. To more accurately reflect current demographic and geographic characteristics of the nation, HRSA s Office of Rural Health Policy, in partnership with the Department of Agriculture s Economic Research Service and the University of Washington, developed an update to the Goldsmith modification designated as Rural-Urban Commuting Area Codes (RUCAs) (69 FR through 47519). Rather than being limited to LAMCs, RUCAs use urbanization, population density, and daily commuting data to categorize every census tract in the country. Thus, RUCAs are used to identify rural census tracts in all metropolitan counties. Section 1834(l) of the Act requires that we use the most recent modification of the Goldsmith Modification to determine rural census tracts within MSAs. Therefore, we are removing the definition of Goldsmith

25 CMS-1321-FC 495 modification at and incorporating a reference to the most current version of the Goldsmith modification, which are the Rural Urban Commuting Areas (RUCAs), in the definition of rural area. Comment: We received numerous comments from members of the ambulance industry that were concerned about the geographic status of their pick-up areas. Ambulance companies located in areas that have been traditionally recognized as rural areas were concerned that population shifts based on whole county designations might not accurately reflect pockets of rurality within those counties. Response: The most recent modification of the Goldsmith Modification, which we are adopting in this final rule, uses RUCAs to recognize levels of rurality in census tracts located in every county across the nation. As a result, many counties that are designated urban at the county level based on population do, indeed, have rural census tracts within them that will be recognized as rural areas through our use of RUCAs. While this may not mean that every commenter will be ultimately satisfied, we believe that using RUCAs to identify sub-county rural areas within urban counties will resolve many of the commenters concerns.

26 CMS-1321-FC 496 Comment: Although a number of commenters were supportive of our use of RUCAs, they requested that we clarify how we intend to define rurality using RUCA categories. Response: The RUCA system is an updated version of the Goldsmith Modification that uses a 10-point scale of rurality. RUCA levels are assigned to a census tract based on the association of a given area s population to the nearest urban commuting area as follows: (1) Metropolitan-area core: primary flow within an urbanized area (UA). (2) Metropolitan-area high commuting: primary flow 30% or more to a UA. (3) Metropolitan-area low commuting: primary flow 5 percent to 30 percent to a UA. (4) Large town core: primary flow within a place of 10,000 to 49,999. (5) Large town high commuting: primary flow 30 percent or more to a place of 10,000 to 49,999. (6) Large town low commuting: primary flow 5 percent to 30 percent to a place of 10,000 to 49,999. (7) Small town core: primary flow within a place of 2,500 to 9,999.

27 CMS-1321-FC 497 (8) Small town high commuting: primary flow 30 percent or more to a place of 2,500 to 9,999. (9) Small town low commuting: primary flow 5 percent to 30 percent to a place of 2,500 to 9,999. (10) Rural areas: primary flow to a tract without a place of 2,500 or more. Furthermore, census tracts under RUCAs can be broken down by zip code for every county, allowing us to modify rural and urban areas within a given county. In the May 26, 2006 proposed rule (71 FR 30358), we did not specify where we would draw the line on the RUCA scale for urban/rural purposes. According to HRSA, the generally accepted breakpoint is to define a level less than 4.0 on the scale as urban and levels equal to or greater than 4.0 on the scale as rural. Under section 330A of the Public Health Service Act, the Office of Rural Health Policy within HRSA determines eligibility for its rural grant programs through the use of the RUCA code methodology. Under this methodology, any rural census tract that is in a RUCA code 4.0 or higher is determined to be a rural census tract. We agree with the majority of the commenters who suggested that we follow HRSA s guidelines and consider areas to be rural if they fall within RUCA levels 4 through 10. One commenter suggested that a rurality level of 2.0

28 CMS-1321-FC 498 might be a better breakpoint for EMS purposes. However, we believe that HRSA s guidelines accurately identify rural areas for ambulance payment purposes and are generally consistent with Medicare payment policies. We will, therefore, consider any census tract falling at or above RUCA level 4.0 to be a rural area for purposes of payment for ambulance services. We are finalizing our proposal to use the most recent modification of the Goldsmith Modification incorporating RUCAs, as directed by section 1834(l) of the Act. We will use 4.0 on the RUCA scale as the delineation between rural and urban (4.0 and greater is rural and less than 4.0 is urban). Comment: One commenter discussed zip code areas that bleed from one type of geographic area to another, such as from rural to urban. This commenter was concerned that zip codes that were predominantly, but not totally, located within a rural area would not receive rural payments for ambulance pick-ups in those areas due to the urban influence of part of the zip code area. Response: When we review a claim for ambulance services, we specifically examine the zip code for the pick-up point to determine whether that zip code contains both urban and rural areas. Census tracts under RUCAs can be broken down by zip code for every county, which allows

29 CMS-1321-FC 499 us to identify rural and urban areas within a given county. Generally, we would categorize a zip code as urban or rural, and make payment accordingly, based on where the bulk of the population in that zip code resides. Comment: Several commenters were concerned about the impact of the proposed CBSA-based geographic changes on the provisions of the Medicare Modernization Act (MMA) for rural service areas, specifically concerning the Super Rural Bonus areas. Response: The Super Rural Bonus areas are areas that we determine to be in the lowest 25 th percentile of all rural populations arrayed by population density in accordance with section 1834(l)(12) of the Act. Ambulance pick-ups in these areas currently receive a 22.6 percent add-on to their Medicare payments. None of the Super Rural Bonus areas should be adversely affected by the proposed CBSA-based changes, as our use of RUCA levels will preserve the rural status of an area whether or not it is located in a county which is designated as urban under the OMB definitions. Areas that do lose their rural status to become urban have become urban because of a significant increase in the surrounding population. Comment: One commenter stated that the ambulance is dispatched to the patient to provide care at his or her

30 CMS-1321-FC 500 pick-up point and, therefore, the ambulance payment system should reflect this procedure. Another commenter suggested that we should retain the Goldsmith Modification in its current form and not update payments under the ambulance fee schedule to reflect the use of RUCAs. Response: We agree that the ambulance pick-up point is the determining factor in establishing payment under the ambulance fee schedule, and we intend to retain this procedure in the payment process. In addition, we agree that we need to recognize levels of rurality, and are doing so by adopting the updated Goldsmith Modification which uses RUCAs to identify rural areas within urban counties. We are directed by section 1834(l) of the Act to use the most recent update of the Goldsmith Modification in the payment process. Comment: Another commenter suggested that we allow ambulance companies to present data to justify rurality, similar to the IPPS hospital reclassification process. Response: Once again, we understand the concern of some ambulance companies to retain the rural status of their pick-up areas. However, as discussed in this section, we believe that, where applicable, the use of the RUCAs, and our ability to identify rural zip codes within census tracts, will address this concern in a consistent

31 CMS-1321-FC 501 manner. Therefore, we do not believe it is necessary to complicate the payment process by developing an additional data submission and evaluation methodology. While the commenter directly referred to the hospital reclassification process that is administered under the IPPS, wherein hospitals can apply for geographic reclassification for purposes of determining the wage index adjustment to their inpatient payments, the hospital reclassification process was established by statute specifically for inpatient hospitals. Therefore, this IPPS reclassification methodology does not apply to ambulance services. 2. Specialty Care Transport (SCT) In the February 27, 2002 Federal Register (67 FR 9100), we published a final rule with comment period entitled Fee Schedule for Payment of Ambulance Services and Revisions to the Physician Certification Requirements for Coverage of Nonemergency Ambulance Services that implemented the ambulance fee schedule. In that final rule, we defined SCT in as the interfacility transportation of a critically injured or ill beneficiary by a ground ambulance vehicle, including medically necessary supplies and services, at a level of service beyond the scope of the EMT [(Emergency Medical

32 CMS-1321-FC 502 Technician)] Paramedic. SCT is necessary when a beneficiary s condition requires ongoing care that must be furnished by one or more health professionals in an appropriate specialty area, for example, nursing, emergency medicine, respiratory care, cardiovascular care, or a paramedic with additional training. Additionally, ambulance vehicle staff must be certified as emergency medical technicians and legally authorized to operate all lifesaving and life-sustaining equipment that are on board the vehicle as specified in (b)(1). Typically, a SCT level of care occurs when the patient, who is already receiving a high level of care in the transferring facility, requires a further level of care that the transferring facility is not able to provide. We implemented the SCT level of payment for hospital-to-hospital ground ambulance transports upon implementation of the ambulance fee schedule on April 1, 2002 and we defined SCT at The definition of SCT in refers to interfacility transportation. As we stated in the preamble to the February 27, 2002 final rule with comment period (67 FR 9100), the SCT level of care includes the situation where a beneficiary is taken by ground ambulance from the hospital to an air ambulance and then from the air

33 CMS-1321-FC 503 ambulance to the final destination hospital. Also, we stated in the preamble for both the September 12, 2000 proposed rule (65 FR 55077) and the February 27, 2002 final rule (67 FR 9108), that SCT was proposed as a level of interhospital service. As stated in our May 26, 2006 proposed rule, we based our payment for SCT-level ground ambulance transports on hospital-to-hospital ambulance transportation data. Subsequent to the implementation of the ambulance fee schedule, we clarified our definition of SCT as hospital-to-hospital transport in a Program Memorandum to Medicare contractors, which was issued on September 27, (Program Memorandum Intermediaries/Carriers, Transmittal AB Change Request 2295, September 27, 2002). That document and subsequent questions and answers related to the definition of SCT were made available to the public on the Ambulance policy Web page on the CMS Web site. In addition, we clarified our definition of SCT in the Medicare Benefit Policy Manual, Chapter 10 - Ambulance Services, in which we stated that SCT is regarded as a highly-skilled level of care of a critically injured or ill patient during transfer from one hospital to another. We have also clarified our policy in Ambulance Open Door

34 CMS-1321-FC 504 Forums, conference calls, and oral and paper communication written in response to questions posed by individuals and groups representing the ambulance industry. Despite our previous attempts to clarify the scope of SCT transport, we continued to receive questions from ambulance suppliers and providers and there was confusion on this point among the Medicare contractors. For this reason, we had proposed to change the definition of specialty care transport at to read hospital-to-hospital transport as opposed to interfacility transportation to conform our regulation text to our existing policy. Comment: Many commenters suggested that we expand the SCT level of ambulance service to include transportation for neonates and adults transported from the scene of an accident to a hospital, as well as transport between hospitals and between hospitals and skilled nursing facilities (SNFs). In addition, commenters requested a clearer definition of the terms hospital and critical care. Some commenters suggested that we reconvene the Negotiated Rulemaking Committee to develop a definition of critical care. Response: We carefully considered the commenters recommendations to expand our interpretation of the term

35 CMS-1321-FC 505 interfacility to include other origin and destination points in addition to hospitals. The SCT level of transport is intended to be used only for transfer of the most critically ill beneficiaries, who require ongoing specialized care beyond the scope of the EMT-paramedic. Typically, SCT level transport occurs when a beneficiary who is already receiving a high level of specialized care in one facility is moved to another facility to receive more specialized services. Although such specialized care is usually provided in a hospital, we recognize that some beneficiaries receive specialized care in a skilled nursing facility (SNF) and may require the SCT level of transport from the SNF to a hospital or from a hospital to a SNF. Therefore, we are withdrawing our proposal to revise to read hospital-to-hospital instead of interfacility and expanding our interpretation of interfacility to include both hospitals and SNFs. In addition, in response to comments, we are further clarifying the kinds of facilities that we include as origin or destination points for interfacility transport for SCT purposes. Many of our Medicare contractors indicate that they have been administering the interfacility requirement in the SCT definition broadly, paying claims at the SCT level

36 CMS-1321-FC 506 of service beyond the scope of hospital-to-hospital. An examination of the latest available claims data shows that SCT-level payments are made predominantly for hospital-to-hospital transportation, as expected, with a small percentage of SCT-level ambulance transports involving other origin and destination points, primarily SNFs. Therefore, for purposes of SCT payment, we consider a facility to include a SNF or a hospital that participates in the Medicare program. In addition, we consider the term facility to include a hospital-based facility that meets our requirements for provider-based status, as specified at Facilities that meet our requirements for provider-based status, like the main provider with which they are affiliated, are held to high standards of safety and patient care. Therefore, we believe that such facilities, due to their close association with a Medicare hospital and their adherence to high standards of care under our regulations, are also among the facilities equipped to provide the SCT level of care to patients and to provide the additional specialized care that is required under the SCT level of ambulance transport. We will continue to enforce our medical necessity requirements concerning all interfacility transports so that we can

37 CMS-1321-FC 507 remain assured that they are occurring for only the most critical patients. We appreciate the request by commenters that we clarify the kinds of facilities we consider to be included for SCT payment purposes. As explained above, our claims data indicate that SCT level care is needed primarily during inter-hospital transfers and, in some cases, during transfers between a hospital and a SNF. Therefore, for purposes of SCT payment, we consider a facility to include only a SNF or a hospital that participates in the Medicare program, or a hospital-based facility that meets our requirements for provider-based status. Medicare hospitals include, but are not limited to, rehabilitation hospitals, cancer hospitals, children s hospitals, psychiatric hospitals, Critical Access Hopitals (CAHs), inpatient acute-care hospitals, and Sole Community Hospitals (SCHs). However, we do not agree with commenters who recommended that a more comprehensive definition of critical care is warranted at this time. The Negotiated Rulemaking Committee was unable to precisely define critical care at the time it originally convened and recognized that a definition provided at the State or local level would be expected to fit, since there are no national

38 CMS-1321-FC 508 standards available (Summary Minutes, Medicare Ambulance Fee Schedule Negotiated Rulemaking, October 4 and 5, 1999). We have no additional data that would permit us to develop a more precise definition at this time. In addition, we believe that a more precise definition might conflict with State or local parameters already in place, as well as possibly limiting the scope of SCT payments in localities where a broader State or local definition would otherwise apply. Critical care will continue to be interpreted by our Medicare contractors in conjunction with directives provided at the State or local level. Comment: Many commenters also suggested that we consider including the ongoing monitoring of a patient by a specially-trained health care professional, beyond the scope of the EMT-Paramedic, to be within the realm of the SCT level of service. Response: We carefully considered these commenters concerns, and we agree that in cases where a critically injured or ill patient requires the SCT-level of transport from one facility to another, the ongoing care that must be furnished by a health professional in an appropriate specialty area, beyond the scope of the EMT-Paramedic, may include ongoing determinations as to whether the patient

39 CMS-1321-FC 509 requires specialized care during the transport. We do not require that specialized treatment actually be furnished during the transport to satisfy the standard for SCT-level transport. However, we do require that the need for specialized treatment can only be ascertained by a health professional with specialized training beyond the scope of the EMT-Paramedic. We agree with commenters who indicated that an ambulance service should not be expected to bear the cost of an additional health professional to accompany a patient just in case the need for specialized treatment arises during transport. When such specialized monitoring is medically necessary, we agree that it is part of the ongoing care that falls within the definition of SCT. Comment: One commenter stated that certain modifiers, such as the D modifier representing a stand-alone emergency room or the I modifier used when transferring a patient from the airport or helipad to the ambulance, exclude these types of ambulance transports from the SCT level of service. Response: The commenter is correct that we generally do not recognize either D or I modifier-type ambulance transports to be SCT level ambulance services. The D modifier would be used to describe a non-hospital-based,

40 CMS-1321-FC 510 non-hospital-owned, or non-hospital-operated diagnostic facility or clinic. We have defined the SCT level of ambulance service as interfacility ground transportation, involving transport between hospitals, hospital-based facilities and SNFs. Therefore, a stand-alone emergency room that is not provider-based or a freestanding clinic that is not provider-based would not meet the requirements for an origin or destination point for SCT level transport. The I modifier indicates an origin or destination that is a transfer point between ambulances, such as transfer from air to ground ambulance service at a helicopter pad. Unless the origin of the first leg of the transport is a facility and unless the SCT level of care is medically necessary after the transfer occurs, we would not consider the transport from the transfer point to the final destination to be SCT level transport. 3. Recalibration of the Ambulance Fee Schedule Conversion Factor In the February 27, 2002 final rule with comment period (67 FR 9102 and 9103), we indicated that we would adjust the CF if actual experience under the fee schedule was significantly different from the assumptions used to determine the initial CF and air ambulance rates. We

41 CMS-1321-FC 511 specifically stated that we would monitor payment data and evaluate whether the assumptions used were accurate. We have continued to review our assumptions annually to determine whether or not a CF adjustment is warranted. We examined the effects of the relative volumes of the different levels of ambulance services (service mix) and the extent of low billing charges to determine whether we should adjust the CF to reflect actual practices. In the 4 years since the implementation of the ambulance fee schedule, no significant differences from our original assumptions have emerged. We have observed only insignificant differences, and, to date, no adjustments in any 1 year have been warranted. It is for this reason that we believe it is appropriate to discontinue our annual review of the original CF assumptions. We also believe that the formal annual review of air ambulance rates should be discontinued as we will monitor all ambulance rates and make adjustments on an as needed basis. The ambulance industry has available multiple venues for notifying us of potential issues. These include the ambulance fee schedule open door forums and telephone calls to designated CMS personnel. As an additional safeguard, we generally conduct a review of ambulance data each year in preparation for issuing the Ambulance Inflation Factor (AIF).